Fairfax India new issue

[obtuse_investor]

This is standard annual filing. Fairfax financial did a similar one at the same time.

[hobbit]

https://www.business-standard.com/article/economy-policy/cargo-traffic-at-bangalore-international-airport-rises-139-in-h1-fy21-120102101095_1.html

[wondering]

In the similar vein as Hobbit's post, here are some fun stats from Visual Capitalist measuring  Top City Destinations.

https://www.visualcapitalist.com/the-100-most-popular-city-destinations/

Interestingly, Bangalore comes in last.  Delhi, Mumbai, Agra, Chennai, Jaipur, and Kolkata all outrank Bangalore.  My point here is that Bangalore is growing quickly, and will probably surpass all but Delhi and Mumbai is the next few years.

[Xerxes]

My feeling is that, as great as a long term investment as the airport is, in the short-medium term, market would value a gain on BV based on fair value assessment of a given illiquid investment much lower than it would value a gain in one of FIH holding that are trading in the stock market.
Namely these four financial names:

IIFL Finance
IIFL Wealth
IIFL Securitie
CSB Bank

The first three are more or less flat since March, while CSB Bank had really good run since March (mostly front-loaded).

In aggregate these had $634 million in market value as of Dec 2019, out of ~$3 billion overall investments, based on Annual Letter in March.
By April 1 2020, these four bad boys had shrunk to a total market value of $390 million and them moved upward toward $472 million by close Q2 (June 30) out of total ~$2.7 billion of investments (liquid and illiquid).

So, the four financials had always something between 18-20% of the total investments in Dec 31, 2019 and the same six months later.
Whereas the Airport's fair value had 45% weighing of the total investments in Dec 31, 2019, and very close to 50% as end of Q2.

I don't know much about airport valuations and little about financial services, either, but when the overall blended book value goes down, if one entity (airport)'s % of that blended book value goes up relatively and if it is assessed through fair value as oppose to the market, perhaps market will express its displeasure of that fair value assessment by discounting Fairfax India's stock, since it couldn't do it directly through that fair value assessment.

But, that being said, the stock markets displeasure with the discount is CRAZY : 

Market value of FIH at $1.18 billion.
Book value at $2.8 billion and within that the airport is valued at $1.3 billion. 

I think, once the four financials start roaring ahead, then you will see that flow through FIH stock price, given that.

-Market seem to prefer an exchange determined price a whole lot more than fair value assessment done privately.
-Financials will be seen as bellwether on the rest of the economy.

Where are all those self-declared long term holders that can't get enough of being a long term holder only when something hits the front page of Wall Street Journal or Financial Times ?

[Xerxes]

------------
EDIT: Another way to look at, not from the largest asset (i.e. airport) point of view, but through all the publicly traded names.
if stock market is valuing correctly, then the $744 million is correctly valued. That leaves $436 million of market valuation for all the private entities that is valued on the book for $1.9 billion.

Take a discount for so-called hedge-fund like fees, illiquidity, emerging market etc. are the private assets really a quarter of their value on the books.

End of Q2:
$744 million of liquid public assets out of total $2.7 billion (public and private).
27% of total

End of Q1:
$591 million of liquid public assets out of $2.7 billion (public and private).
22% of total

End of Q4 (last year):
$877 million of liquid public assets out of $3.04 billion (public and private).
28% of total

[valueinvesting101]

I think valuation for CSBBank (P/B=2.03) is stretched compared to other private sector banks in India such as Axis Bank(P/B=1.67). It might be due to low float of CSBBank leading to mispricing.

I thought break up of IIFL was pre-cursor to merger of IIFL Finance with CSBBank but it seems valuations are NOT conducive for deal. Pure NBFC will be challenged going forward compared to merged CSBBank + IIFL finance. May be deal will happen in 2021 when COVID impact is clear.

[ICUMD]

Trading more than 50% discount to BV.

What's not so clear is the profitability - certainly the airport (along with the other entities) is taking a clear financial hit.
As the operator of the airport on a lease, it may take 2 yrs for profitability to return.

Now as I understand it, Fairfax India has a regulated rate of return of 16%. 
What I'm not sure of is how they plan to increase the user development fee to recoup the lost income.
They also have significant loans for the development of T2 which I understand is proceeding as planned.

On a positive, the flight volumes seem to be returning.

[Parsad]

Trading more than 50% discount to BV.

What's not so clear is the profitability - certainly the airport (along with the other entities) is taking a clear financial hit.
As the operator of the airport on a lease, it may take 2 yrs for profitability to return.

Now as I understand it, Fairfax India has a regulated rate of return of 16%. 
What I'm not sure of is how they plan to increase the user development fee to recoup the lost income.
They also have significant loans for the development of T2 which I understand is proceeding as planned.

On a positive, the flight volumes seem to be returning.

Domestic flights are returning somewhat to normal.  So they hit 70M users a couple of years later than expected.  You lose 2 years of profitability, but that airport is state of the art, with fantastic retail space, and Fairfax has the rights to develop the land around it.  I've seen the airport and toured it first hand...it will prove to be one of the best investments Fairfax made long-term.  And Banglore as an IT hub isn't going anywhere...it's also become one of the more desirable cities to live and work in...not dissimilar to San Jose.  Cheers!

[Parsad]

In the similar vein as Hobbit's post, here are some fun stats from Visual Capitalist measuring  Top City Destinations.

https://www.visualcapitalist.com/the-100-most-popular-city-destinations/

Interestingly, Bangalore comes in last.  Delhi, Mumbai, Agra, Chennai, Jaipur, and Kolkata all outrank Bangalore.  My point here is that Bangalore is growing quickly, and will probably surpass all but Delhi and Mumbai is the next few years.

That list isn't truly accurate.  Vancouver is one of the most desirable, livable cities in the world...constantly ranked in the top 5, let alone top 10...and it sits 69th.  Banglore is much cleaner than Delhi, more modern and is the high-tech hub of India.  Cheers!

[Xerxes]

From Brookfield Infrastructure Q3 investor call:


"Naji Baydoun
Okay. That's very helpful. And just maybe going back to the airport or air travel sector. How comfortable are you pulling the trigger on, let's say, an airport or an airline at this point. Would you say you're still in the early stages of looking at these types of opportunities? Or would you be willing to make an investment right away if the right opportunity came up tomorrow?

Sam Pollock
I guess, I mean, there's a number of considerations that you have to take into account. Obviously, value being the most important one, but the short answer is we would execute tomorrow if the right opportunity came up. The right asset for the right price. So we're not waiting to see what happens with air travel."